HSBC Wins Digital Gilt Contract as UK Moves Forward with Pilot

The UK Treasury says it has chosen HSBC as the platform provider for digital gilts, as the government moves forward with a pilot – the Digital Gilt Instrument (DIGIT) issuance – and prepares to issue government debt on-chain.

The pilot’s design features include the gilts being digitally native, short-dated, and issued on a platform operating within the Digital Securities Sandbox (DSS), thus delivering on-chain settlement. It will also be independent of the government’s main debt management programme.

The decision to move forward with the pilot using HSBC’s Orion platform places the UK in pole position among the G7 nations to issue the first-ever tokenised sovereign bonds on a blockchain. Issuing digital gilts and digital corporate bonds on a blockchain has the potential to improve the structure of UK debt capital markets by accelerating transaction settlement times with a more efficient means to issue and trade bonds, which can help drive liquidity in both the primary and secondary markets.

Announced in last year’s Mansion House speech, the digital gilts form a key pillar of the government’s Wholesale Financial Markets Digital Strategy. The government has also appointed Ashurst to provide legal services for the DIGIT pilot and to support the preparations of the launch. Aspirations to issue digital versions of government debt had surfaced as other financial hubs explore digital asset technology.

The government says it plans to “maintain the UK as a world-leading and global financial centre” and notes there is potential for significant growth in this area. The launch of DIGIT is designed to ensure that the UK’s financial services sector is well-positioned to take advantage of this opportunity.

The pilot will allow the government to explore how DLT can be applied to UK sovereign debt issuance processes and it will serve to catalyse the development of home-grown infrastructure and the adoption of DLT across UK financial markets.

HSBC’s Orion platform has enabled the issuance of $3.5 billion of digitally native bonds globally across sovereign, supranational, central bank, financial institutional and corporate sectors, including the European Investment Bank’s first digital sterling bond in 2023 and the world’s first digital multi-currency digital green bond, issued by the Hong Kong Government.

The move has been welcomed by the Association for Financial Markets in Europe (AFME), which is also urging the UK government to press ahead with multiple issuances. “As the UK moves towards the first of what we recommend should be a series of digital gilt issuances, it is critical that momentum is maintained,” says James Kemp, managing director at AFME. “With the technology now proven by successful issuances – including by governments across multiple jurisdictions – we would urge the UK to now drive tokenisation forward by moving at pace and setting an ambitious issuance calendar that will build confidence that the UK supports capital markets digitisation.”